Chaitanya Patel

Promoted way back in 1986 by the  Mehrotra Family of Delhi, VLS Finance @ Rs 36 (Rs 10) has had a very colourful past ! A candid conversation ,which I had,with one of India’s top Bureaucrats based in New Delhi ,since deceased, in the 1990′s  was peppered with really aggressive and loud colourful language by [...]

It is surprising that Indian mutual funds have not yet launched Target Date funds. It is a big money gatherer in the USA (remember Mutual funds are in the money gathering business not in the money managing business).

What is a Target Date Fund and how does it work?

Since we are in 2015 let me assume that the earliest retirement person is looking at 2045 to retire. So as a fund house I create a fund called “Target date 2045 fund”. This is meant to create a corpus for you by 2045 – and you need not bother too much about asset allocation etc. and exactly in 2045 you should have your corpus ready for retirement.

So as a fund manager I would go with say 90% in equity and 10% in 30 year G-sec (the duration risk is nil because I am going to hold it to maturity). Ideally I should be investing the 10% in zcb (zero coupon bonds) but it may not be available in India. As time goes on I will reduce say 1% every year from equity and buy zcb maturing in 2045.  The advantage for the fund manager is that he knows what he is supposed to do. For example he knows that interest rates are going to decline he can buy more longer maturity bonds and sell them when interest rates actually go down. Such strategies are very difficult for a regular income fund manager to do.

Strategically speaking each fund manager could take a different view even on the equity portfolio. Some could take a view that since they have a 30 year view they could invest in a high risk start up. Another fund could take a view that he would invest in say MSCI world index, Sensex, and the a part in one of the US indices. So each fund manager could have a different strategies. One fund could take the view that the debt portion will act as a margin to take FnO calls and thus improving the returns. One fund could get busy in the area of writing options based on a good portfolio that they are building.

The advantage for the client is he could start with say Rs. 5ooo per month (come on a 25 year old is not going to be able to invest more!!) and increase the contribution by Rs. 500 every year. HERE he need not worry about asset allocation as that worry is being handled by the fund manager.

This is good for the distributor also as the client remains focused on 2045 and not on the yearly returns. To give an example – my wife has a SIP in Templeton India Pension Plan and it is now about 15 years old and it has given her about 12% CAGR. I would have preferred a Hdfc Prudence kinda fund because she is still about 10 years away from retirement…

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

The Eurozone and Greece are going through the last hours of a negotiation to ensure release of additional funds from the previous agreement and possibly setting the basis for the next one.

The leaked details of the latest Greek proposal and the Eurozone counterproposal is full of details and discussions around technical issues (for example, whether the pension reform is effective from October 31 or July 1st). But what the technical discussions reveal is a negotiation that can only lead to an outcome that will not satisfy any of the parties.

Reading between the lines of the technical details we see the Eurozone asking Greece for a strong package of front loaded fiscal measures many of which are exactly the ones the Greek government wanted to avoid as they go against the electoral platform under which they were elected.

It would be very easy to criticize Germany, Brussels (and the IMF) for failing to see that we are possibly doing again the same mistakes as in previous agreements and that this one is also bound to fail. But the reality is that it is very difficult to imagine any other type of agreement give the lack of trust between the two parties.

Many argue that this government should not be asked to pay for the mistakes of previous governments. After all Syriza was not in power when the Greek government and the Greek economy were running very large deficits. This is correct but it is also true that Syriza was not elected on a platform of economic reform, even if some of the economic reforms being discussed are not contrary to their ideas.

I am very sympathetic to the logic that the Greek finance minister Varoufakis has very well expressed that Greece needs growth first and that insisting on fiscal austerity will not deliver the necessary growth. But I also understand the view of the Eurozone when negotiating with a Greek government that was elected on a platform that is not clear that will deliver sustainable growth. Because of the lack of trust, what the Eurozone is looking for in this negotiation is a strong early commitment that the Greek government is willing to take steps that might go against its own electoral platform. In an ideal world those steps would all be about making growth happen: reforms in an environment where demand is not a constraint for growth. But many reforms cannot be implemented in the short run so the only way to get a signal of commitment is to put on a table a set of fiscal measures to improve primary balances, what the Greek government wanted to avoid.

So we are back to a proposal that looks too much like the previous ones and it is very likely that, even if there is an agreement over the coming hours or days, we will witness again in the near future yet another negotiation between Greece and the Eurozone once it is clear that the current plan will not work.

This is the unfortunate outcome of a negotiation that started without trust between the two parties and where the only possible outcomes where both suboptimal: either another unrealistic agreement or a break up of the negotiations that leads to a Greek default and possibly exit from the Euro area. In the next days we will see which of the two (bad) scenarios turns into reality.

Antonio Fatás

Pondering technology is one of my favorite pastimes. As an economist, I have a professional interest in it. Technology transforms and directly impacts the economy at all levels — from the individual to the global economy. As a user of technology, I am delighted that it gives me enhanced access to the world. I hope to convey some of the thrill I feel about technology in this piece.

Tesla Motors

A few days ago I visited the Tesla Motors factory in Fremont, CA, a few miles from home. The visit included a sales pitch, a guided tour of the factory and a test drive. The making of a Model S — like all high tech cars these days — is a marvelous testament to technology. It involves either directly or indirectly the use of practically all technologies ever invented by humans.

Tesla car bodies are made of aluminum. That involves mining, and the manufacturing of aluminum which involves modern complex technology. Batteries are another major component that is a product of amazingly sophisticated technology. The robots that build the cars are at the cutting edge of robotic manufacturing technology. The electronics are a product of another industry; the GPS system that the car uses has as its backbone a system of satellites circling the earth. Satellites are products of . . . wait for it . . . rocket science. To be more accurate, that is about engineering. But real science that is comprehensible only to the highly intelligent and trained is also in the mix: the GPS system is a marvel brought to life by Einstein’s theory of relativity. Wonders will never cease.

About Technology

Our lives are immersed in technology. More accurately, we are immersed in the products of technology. But what is technology? The simplest broad definition is that technology is “know how.” More precisely, technology is about knowing how to do something. The simplicity of that definition leads to a great many implications which I explore in this piece.

There’s a distinction between learning a subject and learning about the subject. The distinction lies in the level of analysis. When you learn some subject, you are as if within it and have an internal point of view. To learn about the subject, you have to move one level higher where you examine it from an external point of view. From the higher more abstract level, you have a view that is not available when you are immersed in it. It is therefore reasonable to expect that one may know technology but without knowing much about technology.

Even if there is a difference between knowing something and knowing about that something, is that a difference worth distinguishing? I think so. The knowing about allows one to better appreciate the thing’s limitations and capabilities, its potential for human welfare, its relationship with other objects, how it evolved, where it is heading, etc. Here I am generalizing from personal experience. Having studied engineering and computer science, I was technologically literate but only as an economist did I start learning about technology: what it was and its impact on our society.

Technology is Know How

Let’s examine that definition. When you know how to do something, you have the technology. Knowing how to make a fire and use it to cook something is technology. In that sense, technology has been around nearly as long as humans have been around. It is not what we’d call high tech but it has as much claim to being technology as the how-to of the making of modern turbofan jet engines that power aircrafts and generate electricity. In both cases whether high tech or low tech, you need to know how. That definition is broad enough to encompass both.

But wait, there’s more. That definition includes things that are not objects at all; it includes abstract ideas, processes and procedures. Double entry bookkeeping is technology. So is the idea of writing. Or the decimal number system. Or the idea of a corporation. Each of those, and many others, have had a profound influence on human well-being. Although we need not go into their details here, they are amazing inventions all.

Technology as Magic

We are desensitized to the amazing power of technology, and naturally so because we are immersed in the products of technology in every aspect of our lives. But through an act of imagination, we can appreciate what the remarkably prescient science fiction writer Arthur C Clarke meant when he said that “any sufficiently advanced technology is indistinguishable from magic.”

Technology brings magic to life. Imagine talking to someone just 100 years ago and telling him that you hold in your hand a little device that can do the following: allow you to talk instantaneously to anyone of a couple of billion others anywhere on earth; allow you unlimited access to stores of virtually unlimited audio, video, text and graphics information; give you access to maps of every part of the world; buy and sell stuff; play games, listen to music; . . . an endless list of capabilities — and all at a price that billions of people can use it without a second thought.

That person from 100 years ago would not believe you because to him it would be inconceivable. We are not given such power of imagination that we can actually conceive of something that is not part of our experience. His experience of a world where information is scarce and expensive to access makes him incapable of imagining a world where information is so cheap that you get it for practically nothing.

Information technology — IT — has seen the most incredible growth among all technologies and has had an inescapable impact on all aspect of our lives. But it is only one of the dozens of many other technologies: medical, transportation, manufacturing, weapons, etc., to name a few. All the major advances in technology push the frontiers of human capacity in ways that are indistinguishable from magic to any person of just a few generation ago.

Beyond Imagination

I would even go one step beyond Clarke in my amazement of technology. Any sufficiently advanced technology is unimaginable for anyone. That is so because of two facts: first, by definition “sufficiently advanced technology” does not currently exist, and second, we cannot imagine what does not exist.

One may object to the the claim that “we cannot imagine what does not exist.” The objection may proceed thus: “Winged horses do not exist. But we can imagine them. Therefore, we can imagine non-existent things.” The fact however is that we do not imagine anything really novel when we imagine winged horses since it is just a synthesis of two things we are familiar with: wings and horses.

The most we can say about sufficiently advanced future technology is that it will be something we cannot perceive today. Aldous Huxley wrote, “There are things that are known and there are things unknown, and in between are the doors of perception.” Those doors will only open in due course of history.

This raises a question: how is true novelty ever possible if it cannot be ever imagined? The fact is that everything that technology creates (with the help of science and engineering) has to be imagined before it can be made into a reality. Therefore if we cannot imagine anything that is truly novel, how do we get true novelty? The answer is step by step by a process of gradual evolution in which each step is a small hop to a neighboring, imaginable change. Aggregating a large number of these small hops eventually leads to a change that could not have been imagined at the start.

Small differences in quantity accumulated over time can result in qualitative change. The makers of the jacquard loom (first demonstrated in 1801) certainly could not have imagined the internet. Yet the idea behind that loom, through a large number of small steps (and together with other ideas with their own large number of small steps) made the internet possible in less than 200 years.

Ideas resemble their “parents” and their “children” but are not identical to them. After a few hundred generations, the changes accumulate to the point that the distant descendants of an idea are distinctly different from it.

Embodied Ideas

We use technology. By that we mean, we use the products of technology. Since technology is “know how”, and “know how” is essentially ideas, the products of technology are “embodied ideas.” Technology products are ideas given a physical form, or made incarnate.

When we hold a smartphone, we are holding a physical object which has embodied in it a very large number of ideas. At least somebody has the know-how for every bit that went into the phone. There are hundreds of discrete components — touchscreen, battery, processor, memory, etc — in it and they are the results of thousands of ideas.

Technology gets transmitted from from person to person through the transmission of ideas. Ideas are what in economics are known as “non-rival goods”, as opposed to “private goods.” Non-rival goods can be shared without reducing the quantity available. We both can’t eat the same apple: which makes apples a private good. But if I have an idea and I share it with you, we both will have the idea. If there are 10 people each of whom has one idea, and they share the ideas among themselves, then each person will have 10 ideas.

Science and Technology

Science is also about ideas. Then what’s the relationship between the two? Science is knowledge about the natural world. Science investigates, while technology creates. Science answers the questions “what” and “why,” while technology answers the question “how.” What is an atom? Why is the sky blue? Science investigates questions like those.

Science discovers, technology invents. Science discovers the nature of atoms and technology invents machines that manipulate atoms, split them, etc. The atomic theory of matter is science. Manipulating atoms, building nuclear reactors and bombs, etc, are examples of technology.

Engineering

A word closely related to technology is engineering. Engineering is the process that builds or creates. Thus science discovers, technology invents, and engineering creates. Engineering is required to create technology products. Engineering is what embodies ideas into products.

Which comes first — the science or the technology? Much of the time, technology comes first. Then science figures out the why things work the way they do. People invented steam engines long before science discovered the principles of thermodynamics. For the progress of science, technology is indispensable. The microscope is a technological tool which aids science. In general, human knowledge advances on two legs: science and technology. Each leg gives a little support to the other leg, so to speak, step by small step. Building more efficient heat engines depended on advances in the science of thermodynamics.

(Astronomy is science in that it tells you what the large scale nature of the universe is like. Astrology, in contrast, is technology: how to make predictions based on some observations. Philosophy is science; religion is technology.)

Tools Expand Production Possibilities

It is useful to distinguish between two kinds of products of technology: tools and final products. The tools are those bits that we use to make something that we value which are the final products. The average person does not own tools that help make cars; he or she is only interested in having a car.

All tools are products of technology. They are embodied technology. To repeat the mantra, technology is “know how.” Know how is simply ideas. The tools we use are embodied ideas. Tools help us to do things that we could not have done without them.

Tools are very useful things. If you had only your bare hands, there’s only so much you can do. But if you had a tool, you could do so much more. Digging and moving earth with a shovel is so much easier to do than with your bare hands; using a steam shovel makes it even more easy. Examples of tools abound: the simple lever, the screw (which is an inclined plane), the wheel, the lathe, and so on.

Tools help us do more. You can do arithmetic in your head. But the task is much easier if you use paper and pencil (tools.) It becomes even easier if you have a spreadsheet program (tool) running on a computer (tool). You produce more for the same amount of input (time and effort) when you use tools. An hour of your time (an input), a computer with a spreadsheet program (tools), and you could do 40 billion arithmetic operations as opposed to only 100 operations unaided. The tools you use expand your “production possibilities.”

Technology is Cumulative

An important aspect of technology is that it is cumulative. That is, the set of ideas keeps getting larger, and the products of technology keep getting more sophisticated as more and better ideas are embodied into them.

Naturally tools also help in the making of other tools. You could say that there are generations of tools — the progression is from the simple, handheld tools such as hammers and saws that have existed for centuries to the most advanced tools that help make things that are impossible to do by hand such as a modern semiconductor manufacturing facility that churns out those silicon chips which are inside every electronic gizmo we use.

Simple tools help create more sophisticated tools. A lathe that can turn wood can be used to make a lathe that turns metal, for example. A modern integrated circuit factory has tools that is generations removed from those tools that human hands alone could fashion. None of the tools in any modern factory can be made by anyone without tools.

Ultimately, a modern factory which manufactures high technology products such as computers represents an amazing collection of ideas that have been embodied in tools through sophisticated engineering over several technology generations. Computers are used to design and build more advanced computers, which then build more advanced computers, and so on.

Technology and Productivity

Another way to look at this is to say that “productivity” goes up when you use tools. How’s productivity defined? It is the ratio of the quantity of production to the quantity of inputs. The higher the output for the same input, the higher the productivity.

Humanity’s material progress has been due to higher productivity that was made possible by technology. Advancing technology provides more sophisticated tools, which make more stuff available. Technology expands the “production possibilities frontier.” That is, using the same stuff, more can be produced. One easy way to understand this concept is to think about what we have today as opposed to say 10 million years ago.

Consider the world around you today. The total amount of material in the world today is no different than what was around 10 million years ago, or at any arbitrary distant past. (Let’s neglect for the moment the material that got deposited on the earth from meteorites and the material lost to space from atmospheric losses.) What has changed is how the material is organized.

People have built farms and factories, cities and nations. Human action has transformed the earth. The most salient transformation is the increase in the carrying capacity of the earth.

Carrying Capacity of the Earth

One way of defining the “carrying capacity” of the earth is the number of people it can sustain at a certain given level of material well-being. Carrying capacity is not a fixed number: it depends on available technology. Carrying capacity is a positive function of technology: more technology, more the carrying capacity. The carrying capacity of the earth has increased with increasing technology.

Given today’s technology, the carrying capacity is — let’s say — around 7 billion. But given the technology of, say, 100 years hence, the carrying capacity of the earth could be 70 billion at present levels of material well-being. This does not mean that there will be 70 billion people on earth in 100 years. It only means that if in 100 years there are only 3 billion people, they could enjoy a level of material prosperity that is 20 times that of today.

Go back a hundred years and you would find the total population of the earth to be around one billion with average material prosperity about a twentieth of today’s average material prosperity. That means, the earth today produces about 150 times the amount of stuff it used to produce 100 years ago. Remember that the amount of material on the earth has not increased. What has changed is the technology that humans have to transform the basic material available into usable stuff.

Technology as Recipes

Another way to think about technology is to think of it as recipes. The recipe for making pizza differs from the recipe for making an electric car such as the Tesla Model S. The latter recipe is much more complicated, complex and involved compared to the former. But in its essence, a recipe is a set of instructions on how to do something.

The making of a Tesla car (like all the thousands of technological marvels such as a commercial jetliner, computers, medical diagnostic devices, complex manufacturing machines, etc.) involves hundreds of thousands of recipes. It would be hard to enumerate them all. And the most amazing thing is that no one knows all of them — and no one needs to know them all. Someone somewhere knows some of the recipes, and collectively humanity knows the entire set of recipes. But how do all these dispersed recipes come together? That itself is perhaps the most important technology (or recipe) that humanity has invented. It’s called the market.

We will discuss the market as a technology later. Suffice it to say that every high technology product you use without exception involves the market technology. There is no efficient substitute for the market. (Efficiency can be defined by the notion of waste — a more efficient process is less wasteful than another.) Instead of aluminum, you could use carbon fibre or steel to make a Model S. Instead of lithium-ion batteries, you could use some other kind of batteries. Indeed, when better batteries become available, they would replace what is being used now. But the one recipe, the one technology — the market — will always be key. It is the god’s honest truth that without the recipe that is called the market, nothing of any sophistication can ever be manufactured by mere humans.

Technology buys Time

It is obvious that technology allows you to do more in less time. Take communications, the most evident use of technology in our increasingly connected world. One hundred years ago, you had telegraph. It was expensive and slow. Now you have cat videos that you can watch to your heart’s content from the comfort of your own home any time you wish, at near zero marginal cost. You can communicate the most trivial details of your life to your grandma at the other side of the earth. It would have been too expensive — you’d need millions of carrier pigeons — to do this a couple of centuries ago.

There’s another more serious way that technology buys you time. Technology extends life. The average life expectancy of humans has increased over the recent century, thanks to technology. Before the invention of modern antibiotics, life was much more precarious. That’s technology. But let’s remember that knowing that germs transmit disease is also technology. Or that vitamin C is important to prevent scurvy and citrus fruits are a source of vitamin C — that’s technology for you.

Bringing Good Things to Life

Technology brings good things to life. That echoes the line from General Electric advertisements: “We Bring Good Things to Life.” The double meaning is clear. Technology brings good things to your life. And technology gives life to (meaning create) good things.

Consider this for a moment. An infected toe could kill a person before the availability of antibiotics. Even the richest person on earth did not have the riches to buy antibiotics when no one knew what antibiotics were. Now no one has to die of simple infections if they have access to antibiotics.

We know that one of the richest persons on earth died a few years ago of a disease (cancer). He could have spent multiple billions on extending his life a few healthy years — but the technology to cure cancer just did not exist. In the not too distant future, curing that cancer would cost perhaps a few thousand dollars. Technology, had it existed, would have bought him time but since that technology did not exist, additional time had an infinite cost — a cost even a multi-billionaire could not pay.

Technology Creates Wealth

Talking of wealth, the most important aspect of technology is that it creates wealth. Wealth is anything that is of value to someone. We can only talk about wealth in relation to humans because value is intrinsically human.

Consider Robinson Crusoe’s island. Only after his arrival can one meaningfully talk about the island’s wealth because only with reference to Crusoe does whatever is present on the island can be said to be of some value. True, there were things there before Crusoe got there but only after his arrival do those things acquire value that he could use. Furthermore, what he could use depends on the technology he had.

Let’s imagine that he did not have the technology to make a fire. The firewood lying around would not be wealth for him. But if he were to discover a book of instructions (in the chest that washed up a day later) on how to make a fire, suddenly all the firewood would become wealth.

Only the know-how, the technology, gives value to things and transforms them into wealth. You could have fine, arable land but if you don’t how to grow food (that is, you don’t have agricultural technology), that land is not wealth. Before humans had nuclear fission technology, uranium was just another kind of useless rock; after nuclear fission technology, uranium became one of the most potent sources of energy. Before internal combustion engine technology, crude oil was just a pollutant; after IC engines, it became “black gold.”

From a certain point of view, there are no “natural” resources. All resources are artificial because they become resources as a consequence of human technology. Take the radio spectrum, a resource that is so immensely valuable today that it is licensed for use at hundreds of billions of dollars. Yet, if you had tried to sell the use of spectrum a century ago, you would be a prime candidate for the loony bin.

Radio spectrum is a limited resource in the sense that there is only so much of it. Technology not only makes it useful but as technologies improve, more can be done with a given bit of radio spectrum. Broadly, technology improves the efficiency of use of any resource. On a bit of silicon wafer, the number of transistors has grown from an order of 1000 in 1971 to an order of a billion currently.

Before IC technology, computation was done by vacuum tube technology, which in turn replaced mechanical relays. The big story is that technology finds substitutes.

Technology Substitutes

We noted that technology creates resources. The most disruptive thing about technology is that it discovers substitutes for every kind of resource. A few examples are sufficient to illustrate this fantastic feature of technology.

Consider energy sources. Each newly discovered energy source changes primary source of energy and expands the use of energy in scale and scope. In the beginning the only source was animal (including human) muscle energy. To that was added wind and water energy. Water and wind energy were augmented by coal during the Industrial Revolution that began in the mid-1700s. Coal, in turn, was displaced by petroleum oil and natural gas (to a large extent). The sequence continues with nuclear energy.

(Just by the way, it is useful to distinguish between energy and power. Also worth distinguishing is the source of the energy and the form in which the energy is used. Electricity is quite frequently the form in which the energy is used. Electricity can be generated by a variety of energy sources: muscle, kinetic (wind, waves, water, etc), chemical (coal, oil, etc) and nuclear (fission, fusion). Thus what is used to generate electricity depends on the economics of the transformation of the energy source into useful electrical energy.)

The ability of humans to create substitutes through technology has had profoundly shaped human societies. Substitutes and alternatives discovered by technology have powerful transformative effects, positive or negative, on human welfare and the distribution of wealth. Large reserves of crude oil made some countries immensely wealthy. But if tomorrow someone figures out fusion technology, those countries with crude oil will find themselves struggling to make a living, while the country that has the fusion technology will be fabulously wealthy. Fortunes can change quite rapidly in a technologically dynamic world.

Technology Transforms

We are living through the initial stages of the revolution in computational and communications technology, or the IT revolution. The pace of change will only accelerate and there are no limits in sight. There’s another technological revolution that rivals the IT revolution: energy technology. The two together will propel humanity from being a Type I civilization on the Kardashev scale (one that uses all energy resources of the home planet) to a Type II civilization (one that uses all the energy of its local star.)

I am firm in my belief in the power of technology. No doubt that power can be misused and could destroy civilization entirely but that fate is not inevitable. I believe that humanity is capable of using technology wisely. And if it does, all our present problems and concerns will be solved. I am a card-carrying technology optimist.

What are our most pressing problems that humanity is facing? Poverty, disease, avoidable pain and suffering, environmental pollution, and energy scarcity. All of those will be gone.

So will humanity be living in a veritable paradise then? No. It just means that every problem we face today will be gone and done with. There will be other problems, and there will be other solutions.

In the next bit, we explore how technology will solve the present problems.

Let me first tell you who is a successful Investor! Who is a successful Investor? To be a successful investor do you:

1. Have to beat the index?

2. Perform better than Warren Buffet, Rakesh Jhunjhunwala, Prashant Jain? Uh….

3. Get better returns than your classmate, brother in law, friend…(Relative’s return?)

NO. To me there is only one Goal of Investing. It has to be to meet your Goals. Bringing us to the most important thing in Investing – GOAL BASED INVESTING.

Now that we know who is a successful investor let us look at a successful investor!

1. They do concentrate on costs: Whether they are dealing with an IFA or  a website for investing, they have a good view of their costs. I am still not sure whether to pay 2.25 for a good fund house delivering 19%p.a. or 1.5% for a fund house getting 12%. This is not easy to understand, but a regular monitoring helps. Almost all of them use an IFA – and on portfolios of say Rs. 5 crores it is worth using an IFA – and negotiate the fee. It works.

2. They keep the bigger picture in mind: They know their strategic asset allocation and do not worry about one quarter or the next quarter. They know fund manager styles, know which fund manager is not corrupt, and know which fund manager accepts criticism. They do not bother who is the Prime Minister or Finance Minister – because honestly over a 100+ year wealth management cycle this will not matter. They realize that wealth creation is very different from lifestyle management.

3. They defer taxes: Avoiding taxes is a crime, but deferring it is a brilliant tax ploy. I know people who do not understand it, and I know many, many people whom I have helped implement this simple technique. So suddenly a person with a Rs.3 crore portfolio goes to a zero tax bracket. It is simple and can be done.

4. They keep it simple: If you run a channel you need a lot of talking heads. They need to talk, and the more you talk the more you complicate. I have seen portfolios with Franklin India Bluechip, Hdfc Prudence, Prima, Prima Plus, Top 200, held for more than 15 years. Simple does not mean small. Many of these people have 8 digits and 9 digit portfolios and are not averse to putting more money into the funds that perform. I know one friend who buys Asian Paints, Hdfc bank, Colgate, Hul on a regular basis – and not only on dips. Remember “Less is More”.

5. They have discipline:  Some of them have written down statements, many of them do not. They know which is their trading portfolio and which is their investing portfolios. I actually encourage them to have 2 brokers – for trading and for investing. One investor I know has 4 fund managers looking after about Rs. 65 crores of total portfolio. Each fund manager is rewarded differently. His fund manager cannot choose the broker, that the client himself does.

6. They follow the money: If you do not know how your advisers are compensated and where there is a conflict of interest chances are you will get ripped off. If you do not know it, follow the money and you can understand what is happening. These guys are damn good at it and treat everybody well, while protecting their backsides. They make sure that their bank RM is a little happy so that when time comes they ask their RM to stand outside the branch to collect Rs. 100,000 cash because they are too lazy to go into the bank and withdraw money and they do not want their servants to know that they are withdrawing cash. So follow the money!

7. In many cases their families have no clue about their net-worth: Or they have a clue, but not the full picture. One person I know gets all the work done by his wife – says that is the best way to teach. His wife and daughter know every transaction – and recently he was telling his wife “I have done this deal and owe Mr. S about Rs…….in cash”. In case I pop it pay it to Mr. S and keep Subra with you he knows the seller. Sometimes it is nice to involve strangers like Subra sometimes it is risky. Either your family knows or you do brilliant record keeping….

many more…but 7 habits is the name of a big book, right?

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Very rarely would a client ask this question, but it is a very important and a tough question. Imagine a prospect asks you this question:

“Why should I hire a financial adviser at all, and why you?”

Do not think of the current period when you are investing. Think 5, 10 or 20 years into the future. Are you sure you will be able to look after your investing? Rules will change, processes will change and I am not convinced that it will change to make things easier. Let me tell you about an aunt’s account in one of the top fund houses in India. Her first account did not have her PAN number. It was then not necessary. So when CAMS or the fund house would issue a statement, her first investment NEVER showed up. However as soon as SEBI introduced a compulsory statement at the end of the year…she got a statement. Her second investment did not have her correct Kyc. The fund house had created multiple folios (completely unnecessary I thought, but who knows). She could not invest in this account as it said “Kyc not updated”. Her latest investment had everything updated. The fund house had created 5 folios for her. Same name, same address, same nominee. After a lot of form filling, threatening, cajoling, etc. now she has a consolidated statement. I think.

Case of another person with direct equity in physical form – what a mess.

So in 20 years your portfolio should look fine, electronically accessible, not lose out any corporate benefit,….and just make sure that you can do all this and YOU are willing to do all this. I AM NOT. It is too damn painful to do and much easier to outsource. I am not sure that many people consider all this. Selecting a scheme for investing is perhaps 20% of an IFAs job.

So now we come to the question of why YOU.

“Because I am updated about all mutual fund schemes, I care about your portfolio, ….” sounds so cliched!

Do all IFAs not give this answer?

So what really sets you apart from the others?

Have you tried this?

I help you learn about investing and in a little time you could talk to me like an equal. Rather, I could lead you to so much of learning that you may start wondering whether you need me. No I will not be rendered useless, but I will help you realize the potential emotional mistakes that you are making. If you do realise quickly it will be my pleasure to tell you that investing is about 80% emotion and 20% logic. If I can even tweak it a little towards 50% each, I would have done a great job.

If I can make you understand why you need an Investment Philosophy Statement and an Investment Diary I would have done my job.

If I can get you to write a 200 word note on every investment that you make, I would have done my job.

If I can convince you that trying hard does not improve returns, I would have done my job.

If I can convince you that you need not jump from branch to branch because you saw a tiger, hey monkey I would have saved your life.

If I can convince you that FnO is not a game, I would have done my job..

Then one day you will want to invest your mother’s money. Your mother’s brother’s money. People you love, but are unable to guide. I will teach you how. Not to make you an adviser but to talk to your family in a far more caring and sensible way.

Or guide your children through the investing process. Not that YOU cannot, but they may listen to me better. It helps.

Then you will want to consolidate all your investment. My trained office assistant could take away the drudgery. I can assure you it is painful. Remember the capital gains calculation on your short term bond fund from which you were doing a STP?

Hey because you get me. I am an individual with 33 years experience in the field of investing. Of this many all years as an investor. A few years as an accountant, some as an investment manager, some as a taxation adviser, as an assistant in a law firm helping people make their will, as a broker, as a journalist, as a venture capital adviser, as an angel investor, as a salesman, as a trainer, as a …..phew.

No. I cannot be replaced by an algorithm. Not by a website. Not by an investor group.

No I am not fungible.

I can assure you, at the end of the journey you would have found me worth every penny. No I cannot really offer you a Moneyback guarantee, but I can make a solid attempt to keep the relationship on till the end of life. My life of course kiddo, you are way to young.

Try this.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

As I wrote this post on committees, Anantha Nageshwaran has a piece on NITI Aayog’s new committee on innovation. Last week when I read that the Tarun Khanna-led committee on innovation and entrepreneurship set up by NITI Aayog would be meeting soon ((mintne.ws/1JQDYbE), my first reaction was “oh well”. Then, it turned into frustration and disappointment. The […]

The presentation of papers kicks off on day 2 at the Grand Marina Congress Center right opposite my hotel. It's a two-storied building with several conference rooms, large and small. As in such conferences, there are parallel sessions on various topics: banking, education, stochastic frontiers, total factor productivity, etc. Delegates move from one room to another depending on their interest. Mine is banking. The participants are from all over the world but there are not many from North America. I am one of two Indians at the conference.

The sessions are well organised. About 20 minutes for the presenter with five minutes for questions. Not enough time to do justice to issues arising from a given paper but that is something that participants do "offline" during the coffee and lunch breaks. Food is laid out on two tables. Unlike in the typical Indian conference which swarms with attendants, there's nobody behind the counters- again, a reminder that manpower is costly. When the break is over, a couple of ladies, with aprons tied around their waists, materialise from nowhere and clear the tables without fuss. Within minutes, the lobby is spotless.

                                                        ***********

There's no point hanging around for lunch- not much to take care of a vegetarian. I head for my room and munch tepla along with chundha, which I had had the sense to pick up Indubhen's in Ahmedabad. (This is a place from which people buy snacks to courier to relatives and friends pining for Indian savouries and sweets elsewhere in the world).  I have picked up several varieties of yoghurt and protein bar from a nearby supermarket. My lunch is done in all of ten minutes.

I make my way to the Uspenski Orthodox Church located a few hundred metres away from the hotel. Built in 1868, it's the largest Orthodox Church in western Europe. It's built on a hill and appears to ascend into the skies. The Orthodox Church dominates in Finland, something the country has in common with Russia.  (Ditto  for Greece, a point PM Tsipras has made in talking ominously of his nation's long-standing ties with Russia). The architecture is strikingly reminiscent of that at IIMA, with the red brickwork clearly standing out in the distance. The golden cupolas are magnificent.

I ascend a steep stone staircase leading up to the Church, crossing tourists moving in the other direction. I'm told the tourists are mostly Chinese and Japanese. There are some very old people in the crowd- one elderly man can barely walk and is being helped by a girl. I wonder how he made it up the stairs in the first place. There's no admission charge and no security, perhaps, not such a great idea considering that an icon was stolen from the Church about a decade ago.The balcony one level below the Church entrance gives a great view of the city. I could have stood there for hours taking in the view and enjoying the weather.

                                                    **************

There is a wide range of papers in banking. The impact of financial services on industrial structure and development (one important question that came up was whether small, local banks translate into more lending for small enterprises); Sources of productivity growth in Indonesian banking; Bank branch operational performance; Sources of return to scale of US banks; and so on.

My paper is on performance of public and new private sector banks in India in the post-reform period, using what is called a pooled sample. The conclusions are striking: between 1993 and 2011, there was a trend towards convergence in performance between the two categories of banks. Only in 2011-13 did performance diverge. And the divergence happened because public sector banks chose to be exposed to infrastructure in a way in which new private banks did not. The infrastructure sector itself was impacted by non-economic factors such as regulation, lack of clearances, etc. I conclude that performance in Indian banking has been ownership neutral. Policy prescriptions based on a snapshot of performance in recent years, such as the ones made in the P J Nayak committee report, are thus inappropriate.

My conclusion is not novel. There is a wide range of studies that have arrived at the same conclusion but these were done much earlier. What my study does is to validate the conclusion for a much longer period. Strangely, neither the media discourse nor government policy has been informed by the evidence thrown up by the academic literature on the subject. People keep parroting the same nonsense about the superior performance of private sector banks.

                                                      **************

In the evening, I head for Esplanade Park, just past Market Square. The Square itself is filled with stalls selling cherry, plum, strawberry and banana, a wide range of fresh vegetable and lots of sea-food. I sit on a stool facing the sea, the wind blowing lightly, and savour a delicious cup of freshly squeezed orange juice.

Esplanade Park has come alive. There is a band playing on stage. The chairs are filled with mostly old people. (The adverse demographics of Europe is manifest on the streets). Then, a group of dancers dressed in traditional costumes hope on to the stage for a round of folk dance. The glass cafe, Kappeli, opposite the stage is more nearly 150 years old. It was a hangout for the likes of Jean Sibelius, the famous music composer of Finland. (Finlandia is one of the famous compositions of the country- you should listen to it on You Tube).

The music and the luxuriant vegetation on the park are wonderfully soothing. There must be several dozen such places in Helsinki where people can hang out and relax. In material terms, life is made for people in such places The income level is high, medical care of high quality is assured and so is social security. There are parks, swimming pools and saunas in abundance (an estimated two million saunas for a nation of five million!).

In much of the developing world, including India, life is harsh, unrelenting and the main cities virtually devoid of beautiful public places. When you step out, there is very little to lift the spirit. Paris is, perhaps, the finest example of a city built to enthuse and energise its denizens. China is a luminous exception in the developing world. There is, however, a downside to the comforts of the Nordic region. People have to deal with a truant sun- I'm told by a conference participant that depression is high in many of these places and so is suicide. Not all the cafes and parks and upmarket shops can make up for a plain sunny day.

There is a reception for the conference participants at City Hall, just off Market Square. This is the building that houses the Mayor of Helsinki and his administrative staff. There's a brief welcome speech by one of the assistants of the mayor. The City Hall, he says, is meant to receive important visitors "such as yourselves"- there are broad grins in the audience. Food and wine are served in a high-ceilinged room lit up with chandeliers.

                                                                 **********

It's time for a tour of the city. There are two basic options: a straight one and a half hour visit to the main sights and a hop-on-hop-off tour which enables you to get off and explore places and get back to a bus when you are done. I opt for the former. I have a flight to catch in the evening. Besides, it's impossible to do justice the museums, concert halls and other places in a hour or so.

You need to stay in a place for at least ten days if you want to do justice to it. You must use public transport, including trains, to get a feel for it. And, of course, a lifetime is not enough to explore New York or London (my two favourite cities, I spent five years as a student in the former.). That's why I've always felt that the seven-day tours of eight cities that tour operators offer are a dumb idea- there's nothing to these other than being able to tell yourself that you've been there.

I board a bus at Esplanade Park. The driver greets every single passenger warmly. There is a young girl to shepherd us around. A commentary is available on the audio system in 12 languages. It's raining hard so the windows have streaks of water on them. The snaps one takes end up with gashes.

Off we go. Over the next couple of hours, Helsinki is revealed in all its splendours. There's the Senate Square with a variety of important buildings. The government Palace which houses the PM and his cabinet, on the opposite side is the main building of Helsinki University and adjacent to these is the Helsinki Catherdral glistening in white. A university opposite the office of the PM? Given the security paranoia we have in India, this would be unthinkable. I can't seen any sort of security anywhere in the Square, much less gun-toting commandos. It's a different world.

Other sights fly past in succession. The upmarket residential area which houses the embassies and the Helsinki rich- it's set on a hill facing the sea, the houses surrounded by acres of greenery; the Museum of Contemporary Art; the National Museum; the central office district which includes the biggest supermarket in Europe; the Central Bank; the Finnish Parliament; the Olympic Stadium; and the Sibelius memorial. All along the route, elegant cafes and parks spring into view. Helsinki was able to host the Olympics in 1952; we dream of hosting one in the next decade. That one fact
epitomises  the gap in standard of living. I mustn't sound too harsh. There's a world of difference between creating prosperity for a land of five million and a land of 1.2 billion.

The bus drops us at Senate Square. It's raining hard but I think it would be a shame not to visit the Helsinki Cathedral. I climb the steps leading up to the white stone monument. As I enter the Church, a communion is on with a priestess presiding. I take a seat. The priestess says a few words, then the music starts playing. I am not a religious person but the ambience in the Church gives me a flavour of what the religious feeling is all about, a sense of beauty and a sense of the sacred.

                                                        ***************

I await the taxi that will take me to the airport. The receptionist at the hotel tells me it's safer to book one than to bank on getting a taxi at the stand right outside the hotel. She doesn't tell me that pre-booking costs an extra five euro- commercial instincts are the same everywhere in the world. I am charged ten euro per hour for the five hours I have spent past the check-in time. In India, if you have stayed in such a place for four days, they would cheerfully waive extra charges for late check-out. If they charged extra, people would start howling.

I keep looking around the lobby for signs of the driver. Finally, I see somebody at the door holding a placard below his waist. I missed him earlier because he happened to be wearing a suit. With his spectacles and gray hair nicely brushed, he could pass for a distinguished academic. He picks up my bag and takes it down the steps. The vehicle is a mini-van. I tell him I had asked for a cab. He smiles, "The fare is the same". He keeps up a steady chatter of comment on the places along the route. He will park his vehicle near the airport and cycle back home, he tells me. No wonder he looks so fit.

The check-in and immigration counters are done without fuss. I am soon at the check-in counter. I head for the loo. There's a heavy stench as I enter. I feel almost exultant- this happens in the developed world too! The crowd again is overwhelmingly Indian and middle-class.

A girl is going around offering her laptop to sundry passengers. I figure she's taking some sort of feedback about the airport. I see our aircraft parking outside the boarding gate just hour an half before the departure time. I know we are gong to be late. Sure enough, we depart late and arrive in Delhi half an hour past the scheduled time. At Delhi airport, I make a beeline for Vaango and gobble down idli-sambhar.

Helsinki, you won my heart.

Today we bring in a conversation with Raghu Vohra, founder at Blackstone Valley Group and an investor in Capital Mind. Raghu works closely with the fixed income investment space, and I ask him about how India figures in the global allocation scale. How do fund managers decide about whether or not to invest in  country, what risks they face and so on. Do take a look!

… (Read On...)

I was writing to potential clients when I realized that I don’t have so much to write about my bond track record as I do my track record with stocks.  I jotted down a note to formalize what I say about my bond portfolios.

One person I was writing to asked some detailed questions, and I told him that the stock market was likely to return about 4.5%/yr (not adjusted for inflation) over the next ten years.  The model I use is the same one as this one used by pseudonymous Philosophical Economist.  I don’t always agree with him, but he’s a bright guy, what can I say?  That’s not a very high return — the historical average is around 9.5%.  The market is in the 85th-90th percentiles of valuation, which is pretty high.  That said, I am not taking any defensive action yet.

Yet.

But then it hit me.  The yield on my bond portfolio is around 4.5% also.  Now, it’s not a riskless bond portfolio, as you can tell by the yield.  I’m no longer running the portfolio described in Fire and Ice.  I sold the long Treasuries about 30 basis points ago.  Right now, I am only running the Credit sensitive portion of the portfolio, with a bit of foreign bonds mixed in.

Why am I doing this?  I think it has a good balance of risks.  Remember that there is no such thing as generic risk.  There are many risks.  At this point this portfolio has a decent amount of credit risk, some foreign exchange risk, and is low in interest rate risk.  The duration of the portfolio is less than 2, so I am not concerned about rising rates, should the FOMC ever do such a thing as raise rates.  (Who knows?  The economy might actually grow faster if they did that.  Savers will eventually spend more.)

But 10 years is a long time for a bond portfolio with a duration of less than 2 years.  I’m clipping coupons in the short run, running credit risk while I don’t see any major credit risks on the horizon aside from weak sovereigns (think the PIIGS), student loans, and weak junk (ratings starting with a “C”).  The risks on bank loans are possibly overdone here, even with weakened covenants.  Aside from that, if we really do see a lot of credit risk crop up, stocks will get hit a lot harder than this portfolio.  Dollar weakness and US inflation (should we see any) would also not be a risk.

I’ve set a kind of a mental stop loss at losing 5% of portfolio value.  Bad credit is the only significant factor that could harm the portfolio.  If credit problems got that bad, it would be time to exit because credit problems come in bundles, not dribs and drabs.

I’m not doing it yet, but it is tempting to reposition some of my IRA assets presently in stocks into the bond strategy.  I’m not sure I would lose that much in terms of profit potential, and it would increase the overall safety of the portfolio.

I’ll keep you posted.  That is, after I would tell my clients what I am doing, and give them a chance to act, should they want to.

Finally, do you have a different opinion?  You can email me, or, you can share it with all of the readers in the comments.  Please do.

I am sure all of us want to reduce the clutter in our lives, but do not have the heart to do it, right? So let us start….at the very beginning.

1. Your possessions: Start with your clothes – count – you need 5 or 7 pants, throw out the balance. You need 12-15 shirts, maybe 10 tee shirts. Anything else is excess. So the 3 wind cheaters, 3 Goggles, 12 pairs of shoes,…go on throw away the excesses. Then turn to the calculators, watches, cellphones, cameras, lenses (oops you have SLR lenses – sorry sir DSLR is in). Then turn to those magazines which you promised you will read in the weekend. Stop fooling yourself. Just get rid. It is empowering. What ever you want to read is there on Google, and it is free.

2. Your time: When people who do not matter take up the time that rightly belongs to your family, think hard. Just because he is on the phone it does not mean your time is LESS VALUABLE. So just hang up. Your time belongs to people you love, not aam junta.

3. Books that you cannot / will not read. Guilty. I still have lots of books…some still unread. I should be sitting on at least 10 unread books. Make a plan to read the books, if you still have not touched them, give it away after 3 months.

4. Papers – white paper, some print outs, some other reading material…if you have not read them in the past 4 years, you will not read it. Just let go.

5. Your Goals: Reduce the Goals and increase the concentration on the goals that remain to be done.

6. Your Debt: and for doing this if you have to reduce your assets, use OLX. Just get aggressive – get rid of things you do not need. Just olx it. With the new found money make sure that you eat healthy and wholesome food.

7. Talk less. Listen More.

8. Reduce screen time – television, phone, Ipad, laptop, …..dramatically reduce screen time. Screen adds to stress.

9. Give up multi-tasking and learn to concentrate. Give up multi tasking…repeat Give up….

10. De clutter your food: dramatically reduced cooked food and eat tons of fresh salads etc.

..,many more…but 10 is not a bad start…

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

A lot of our life is lived according to our habits. Like getting up from bed, making our bed, brushing our teeth, …the human body loves a routine. Habits and routine save a lot of energy for the brain, and hence the search for a routine.

This impacts our investments too. Let us look at some of the other mistakes:

1. Trying too hard: Investments require some patient and active inaction. Once you have invested in a company you need to sit tight, many investors lose patience. This also happens because they visit too many investment websites, facebook forums, yahoo groups, …and in short they itch for action.

2. Overconfidence: Reading is good, but I find novices visiting the forums start talking about knowing how to invest. Who will tell them that experience cannot be taught?

3. Trying to do extraordinary things: When a No. 8 batsman is playing with a No. 4 batsman, the No. 8 batsman should just take a single and let the senior batsman score. Instead he tries to hit the ball outside the ground and loses his wicket. Ditto in investing. Investors keep looking for doing that one ‘extraordinary’ thing and in that quest forget the main aim of investing. One such very important thing is to maintain accounts – for your expenditure and for your investments. How many of us do it religiously? Why not?

4. As the market is uncertain (it always is) putting a solid process, keeping an investment diary, writing down an Investment philosophy statement, keeping account of expenditures, of goals, knowing the asset allocation and monitoring it, creating an investment criteria before you buy…all these are far, far more important than the fund ./ equities that you choose.

5. Not losing money is far, far more important than spotting tomorrow’s multi bagger. If you do not have a process in place it is possible that you buy a share at Rs.20 and be thrilled that it doubled to Rs. 40 in 2 years and sell off. Then have the mortification to see it go to Rs. 500 in 3 years time! You did not have the process to spot it (you had luck in buying it), and hence lost out on the real wealth creation journey. You need to concentrate on the process. NOW.

6. When under stress do not take too many decisions. Especially if you are a trader! When the market falls too fast and too hard, the best thing to do could be to stay calm. This is easier said than done.

more will follow…

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

As I await the Air Finland flight to Helsinki at the boarding gate in Delhi, I am in for a big surprise. The flight is full - and most of the passengers are Indian, mostly middle-class people on a group tour. 

The flight departs half an hour late (and lands half an hour late), so India's airlines take heart. The economy section is cramped and uncomfortable and it's warm inside as the plane readies to depart. The airline doesn't provide a bottle of mineral water. You are supposed to trudge up to the flight crew's section and help yourself to a cup of water. Since this means having to disturb the person next to you, it's not pleasant at all. Lunch is frugal and nothing to write home about. There are announcements in Hindi and English, the airline mindful of the large complement of Indians on the flight.

                                                              *****
Helsinki airport is quite small and the immigration counter courteous and quick to clear. I am out in about half an hour or so. It's cold and drizzling outside,14 degrees- and this is supposed to be summer in the Arctic region. I'm glad I have my jacket on and have brought along a sweater. I get into a large-sized cab. It turns out to be a BMW (and yet the fare is no different from that for other cabs). The driver is from Somalia. He landed decades ago and hasn't thought it necessary to ever go back. "It's rather tough out there", he says. It's hard to disagree.

The sights alone the drive from the airport to downtown Helsinki, where my hotel is located, remind me of London, with lots of brickwork-like buildings along the route and plenty of greenery. It's a Sunday, so traffic is scanty. We do the 20 km distance in about 20 minutes. The cab fare is around 50 Euro. As I arrive at the hotel, a seafront and several large liners loom into view. Helsinki has five ports and this one comes right into the city. There are plenty of cruises from here to Stockholm, St Petersburg and elsewhere.

Scandic Grand Marina is a four-star hotel. It wouldn't compare with Taj Vivanta although the tariff is comparable to that at Taj Colaba. There is a flight of steps to climb from the road into the hotel. No attendant comes rushing nor is there a doorman. I have to lug my bag up the stairs up myself. There is a smallish lobby leading to the only restaurant. Just two people at the counter to do the check-in and check-out. You understand what it is to be in a high-wage country (Finland has a per capita income of around $30,000).

I had asked for a sea-facing room. What I get is a room facing the conference centre. Standing at the window and viewing the outside from a sharp angle, I get a glimpse of the sea. The room itself is quite utilitarian. Surprisingly, there's no indoor heating. I'm told a room heater can be available on request. I had seen the menu card put up at reception and my heart sank. There is a very limited number of items on offer (quite unlike the multi-page menu you get at an upmarket hotel in India) and, except for one item of salad, no vegetarian food.

                                               *****************

The next morning, I head for Aalto business school where the conference is to kick off. I'm there for the European Workshop on Efficiency and Productivity Analysis. Helsinki has free wi-fi in most places in the city. I look up Google Maps and know which tram to take and where.

I step out of the hotel and make way to the tram stop. The narrow road from the hotel gives way to a broader one about 100 metres away. I walk pass Market Square where fresh vegetable, fruit and other foods are on offer. This is a typical downtown location of an European city. Broad avenues with parks and other greenery at regular intervals at the centre. Cafes and other restaurants on either side, along with upmarket shops selling clothes, jewellery, hand bags and what have you.

I have to stop and ask for directions every now and then. I am to find over the next few days that people are uniformly courteous helpful. This is probably the friendliest country I've ever been to.
Finland has a population of just five million. It was ruled for nearly 150 years by Sweden and then by Russia, becoming free, I am told, in 1917. It is part of the Nordic states and its economy conforms to the Nordic model- high taxes (43% at its highest in Finland) and free provision of education at all levels and high-quality medical care. It also has an excellent public transport system, comprising buses, trams and a metro, and cycling paths all over the city.

                                                    ****************
I board the tram. Most drivers, I notice over the stay, are female. There's no conductor, you pay the driver as you enter. (Doubt that this would work in India). I know from Google Maps that the ride is about 20 minutes long. I keep glancing at my watch. It turns out that there is a lady next to me who is also headed for the conference. Twenty minutes later, we ask somebody if we are close to Aalto. We learn we are and hop off. It's a good ten minutes from the tram stop to the business school.

There's not much of a formal inauguration. The first day is spent on workshops for students. I head for the finance department. Some of the offices are open. I knock on a door titled, 'Director of finance'- I guess it must be the head of the department. A professor with his back turned to me and bent over a PC wheels around on his chair and looks up. I ask,"Do you have few minutes"? He breaks into a grin. "Of course".

I walk in and take a chair. I introduce myself. I tell him I want to know something about the school. He chats with me for a while and then puts me on to a colleague. Aalto is Finland's leading business school. Both students and faculty are overwhelmingly from Finland but that's changing of late.There is a huge effort to recruit faculty from outside by offering competitive pay. A business school degree is not part of the mainstream university courses, so Aalto charges a fee for its undergrad and MBA programmes. I am surprised to learn that placement- which is really the whole point about a business school- is not very active at Aalto. Not many companies come to the campus  to recruit. Students have to apply on their own. If this happened in India, b-schools would lose their clientele.

I ask about Finland's high school education model of which I have heard so much. Kids go to school only when they are seven.There are no exams until the final stage. The teacher to student ratio is amongst the best. School teachers are well paid, well-educated and highly respected in society. The prof remarks, "This system is good for bringing everybody up to a certain level but it's not good enough to achieve excellence". I guess that could pass for a comment on socialism in general. What he omits to mention is that it may be difficult to achieve excellence until society as a whole first reaches a certain level. Ask the Russians and the Chinese.

Aalto b-school is part of Aalto university. The university itself is split across three campuses, one of which is close to my hotel. The b-school has another building, called the main building, which houses mostly the administrative staff. I am put in touch with the international exchange coordinator. I'm pleasantly surprised to learn that IIMA has an exchange arrangement with the b-school and a couple of students on either side have been going over for the past several years.

Not far from the B-school is one of the best-known sights of Helsinki, the Rock Church, a whole church burrowed into a natural rock formation. I enter the cavernous structure and am amazed to see a beautifully lit church inside swarming with tourists. There's a lady playing the piano. I sit on the one of the benches and take in the mellifluous notes.
 

This is a guest post by Darshesh Thacker, who’s currently studying and interning at Capital Mind.

Since 1982, Indian households have spent many an hour over their favourite Maggi noodles. Glitzy advertisements year after year have managed to keep the consumers hungry and lured them into buying Maggi 2-minute noodles which made it an Indian household staple. However the last few weeks have seen a sudden turn of events with everyone doubting their beloved snack ever since the high lead content in Maggi controversy surfaced in the public eye. So not only has our evening snack schedule gone for a toss but also the financial stability of Nestle India.

The background: Maggi samples were found to have excessively high lead content in them, by government tests of the Maggi “Tastemaker”. The lead levels were apparently higher than the maximum permissible limits. This has since led to a ban by many states, and as the controversy boiled over, Nestle decided to take the product off the shelves.… (Read On...)

CRISIL has an index to measure the performance of actively managed equity funds in India. It is called ‘CRISIL AMFI Equity Fund Performance Index’. The base was set as 1000 as on 1’st April 1997.

Sensex:

As on 1’st April 1997   : 3427

As on 31’st March 2015: 27957

Annualised return: 12.36%

Money multiplied by 8 times

CRISIL AMFI Equity Fund Performance index:

As on 1’st April 1997   : 1000

As on 31’st March 2015: 39971

Annualised return: 22.74%

Money multiplied by 40 times

Though Sensex itself has provided decent returns over long run, actively managed equity funds (where you invest your money) has done phenomenally well in India.

Funds have multiplied money anywhere between 40 to 100 times during last 2 decades. As a category, during last 18 years, these equity funds have given an annualised return of 22.74%, multiplying wealth by 40 times. The returns are completely tax free. Where else an investor can get such a wonderful opportunity?

The CRISL AMFI Equity fund index has never given a negative return for any 5 year period on a daily rolling basis since inception.

If you invest regularly over long run in equity funds, you would be richly rewarded.

It is the most simple and effective way to build wealth.

I’m confident that next 20 years would even be better than last 20 years for our country, economy and markets.

Don’t let go off this golden opportunity.

Today…

“And they lived happily ever after..“,said Satvik as he closed the story book and looked at his youngest grand-daughter Nisha. “GrandPa tell a different story which does not end with marriage..It’s so boring to listen about them “. “Dumbo they are fairy tales not real life. Real life is not a bed of roses, right GrandPa,” said Vrishti, the older one. Without waiting for the answer she continued “I have so much to do..Maths, Physics, and that English Assignment that Maam gave. We are drowning in work..How will I become doctor if I have to write that stupid English Assignment”

“A dream without a goal is a wish. A Goal without a Plan is just a dream“, said Satvik. “You need to have a goal, plan for it and then start working on it..” Kal ko Khoobsurat banana hai tu aaj se shuru karo.” “Aap bhi..Mauka milta nahin hai ki shuru ho jaate hain..” said Grandmother ,Neha,as she walked in the room. “Girls I have got your favourite dessert Gulab Jamun.”  ”Dadi you should come often or rather stay with us, we love your Gulab Jamun..but you keep on travelling the world..” Yes it was my dream to travel the world, since I read the book around the World in 80 days when I was your age and your Grandpa made my dream come true.” Satvik said “Not I but we. It’s God blessing but we had to plan to make your Dadi’s dream and our other dreams come true. Nisha let me tell your story which starts from marriage and it is not they lived happily ever after”

35 years ago…

“Money is almost gone and half a month is still left,” said Neha to Satvik. “And we have those tax saving investments to work. We both work in good organization, enjoy our life but money seems to slip through our fingers faster than sand. What do we do? ” replied Satvik  ”Why are we in this situation? We have to think and also how to avoid it? If we go like this how will we have the life we want and we don’t even have kids”. Both Satvik and Neha were lost in their own thoughts. They have had a good life, good school, engineering degree, got job in MNC as soon as they passed out, got married,work hard, partied harder ..so how did they land in this situation and important question is how to come out of it. Suddenly Neha jumped “Lets ask your father Satvik, he will surely help us to find the missing piece of our financial life”

Without wasting any time Satvik called his father , Rajesh Sharma.  After satisfying his father that everything is fine, he explained to his father the situation.  ”So what’s your financial plan? What’s your net worth” asked his father. “My plan is to work hard and enjoy life”, said Satvik.  ”That’s your wish Satvik, I am asking about your plan?”, said Mr Sharma. ”  ”That’s my plan”, replied Satvik. “So where are you going this vacation. Anything zeroed in or still looking at Seychelles, Paris, Switzerland?” asked Mr Sharma.  Satvik and Neha looked at each other wondering why is Mr Sharma talking about their vacation plan. Neha replied “We have zeroed on to Singapore.” Mr Sharma replied, “That good to hear. So you have decided your flight tickets, hotels and your sight seeing itinerary”. Satvik replied “Yes Papa I have those 5 days fully planned. But I want to ask about is my financial situation” Mr Sharma , answered “Always putting cart before the horse. I am also talking of the same thing. For a 5 day trip you have a plan but for your life your don’t have one. Before a person builds a house, he or she usually calls in an architect to draw up the plans. Could you imagine what could happen if someone just called in some people and began to build a house without a plan? Well, that is what happens to many people’s financial houses” “If you are failing to plan, you are planning to fail,” Neha quipped.

“Well said Neha, Meri bahu se kuch sikh” said Mr Sharma between his laughs. “Planning is bringing the future into the present so that you can do something about it now. A plan is like a road map, it shows the final destination and usually the way to get there” The rules of money don’t change from class VI to age 60. The relative heaviness or lightness of the journey through life depends on how clearly monetary goals are articulated. Just like Seven steps of vows there are seven steps of financial freedom are , as articulated in Monica Halan (editor of  Livemint), book  A Family’s Guide To Seven Steps To Financial Freedom by Monica Halan

Step 1: Find the Bearings : Your current financial status Calculate your net worth
Step 2: Protect the Present :Insuring your assets and income
Step 3: Identify the Dreams :setting your goals
Step 4: Choose the Route : risk profiling and asset allocation
Step 5: Put It All Together : Making your own plan
Step 6: Begin the Journey : Implementing your plan
Step 7: Review the Progress :monitoring your plan

“Thank You  Papaji. Satvik shall start our current financial status” ,said Neha. “No..you cannot let Satvik look into it alone. For better or for worse, good times and in bad, in sickness and in health you have agreed to honour and love him. As this affects your future happiness you have equal stake in it and should take responsibility also. How will he know about your dreams, what you want in life  I love this  Exide Life Insurance Advertisement in which the couple are talking about their dreams and planning for Happiness , not getting scared . If you plan then you will have Long and Happy Life, Kal Khoobsurat Hona Hi Hai.

The other thing that I liked about this advertisement was there Long and Happy Scrap Book. A goal without a plan is just a wish. I totally believe in power of writing and when I have written down somehow…” Neha chirped in  ”Itni shidaat se main tumhe paane ki koshish ki hai,hi har zaare ne mujhe tumse milane ki saazish ki hai” I loved that dialogue in Om Shanti Om. “Kehte hain ki …… Agar kisi cheez ko dil se chaaho to puri kayanat usey tumse milane ki koshish mein lag jaati hai.”

“My Shahrukh Khan fan, picture abhi baaki hai,” replied Rajesh. “You need to write down what you want, plan for it .  Infact there is a book Think and Grow Rich  by 1937 Napoleon Hill, personal development and self-help book.  ”But Writing about goals? It’s boring!” complained Satvik. “There are few success practices more important that articulating your most closely held goals and then reviewing them daily. And guess what? Most people don’t spend more than an hour a year doing this. There are 4 big reasons for you to set goals: Focus, Measurement, Alignment and Inspiration. If you don’t know where to go, young man how will you reach there..Remember what Cheshire Cat answered to Alice in Wonderland”

Rajesh continued “You should setting three kinds of goals: emergency funds (three to six months of essential bills) one- to five-year goals, such as for a down payment or a trip, and then long term goals, kids education, marriage, retirement. Both of you should also be on the same page , you need to talk about many things  career, travel, kids and finances. A few factors that play into financial issues for couples are Money Issues in Marriage : Your, Mine and Ours. Not understanding how each spouse uses or manages money. Not knowing their habits is your spouse a big spender? Not being honest about debts. And if you want to come together financially then you have to: have open communication about your finances (financial transparency), share information credit card and bank statements, establish goals and a budget, and meet frequently to discuss finances. Be equally responsible for your financial life.

“Papa this is all theory, sounds good but how to do it?” asked Satvik. “Good question son. To prepare financially for a long and happy life use The Money Book. ”

The Money book

• It would be one stop for all your financial information. Your insurance,(life, health,motor), your bank details(Accounts,Lockers,Demat Account,Credit Card), Your Loans(Home loan, Auto loan), your investments(FD,Mutual Finds, PPF,EPF, Others..) It would help you to stay organised as it will have all your information in one place
• It would be your legacy book : So your family don’t have to go through the inconvenience of searching for documents and whom to contact,

 

Basically it will help you to plan your life, a  Well Planned Life for a beautiful tomorrow.

Today…

“It seems that we had this conversation yesterday. How fast the time has flown . It has been hard work, we had to give up partying, buying new mobile every 6 months, going to mall for every sale, maxxing our credit card limit but we didn’t have regrets for we knew where we wanted to go” said Neha as she looked at Satvik.  ”That’s what I call a Happy Real Love story. Time for bed”. “So If you want to achieve something in life than write down, my princesses,” said Satvik.

Related Articles:

• Investing in name of Wife
• Oh you are only a housewife!
• Changing Name:What to do?
• Reliance : Dhirubhai Ambani,KokilaBen DhiruBhai Ambani
• Money Issues in Marriage : Your, Mine and Ours
• Beginner to Investing – Approaches, Plan, Psychology

So do you have a money book? How do you plan your financial life? Do you handle your finances jointly or alone? How do you organize your financial information? Would you like the money book to organize one?

Napoleon born apart. That terrific pun I heard from my school master about sums up the popular perception of one of the greatest conquerors and military leaders in history. On the bicentennial of the battle of Waterloo, which put an end to Napoleon's reign once and for all, there is a spate of books and assessments of this larger-than-life figure.

There are, as is to be expected, diametrically opposite views on Napoleon. The positive view is one that sees him as a creator of modern France. One article sums up his achievements very well (and is worth reading for its analysis of the epic battle of Waterloo alone):

Yet he said he would be remembered not for his military victories, but for his domestic reforms, especially the Code Napoleon, that brilliant distillation of 42 competing and often contradictory legal codes into a single, easily comprehensible body of French law. In fact, Napoleon’s years as first consul, from 1799 to 1804, were extraordinarily peaceful and productive. He also created the educational system based on lycées and grandes écoles and the Sorbonne, which put France at the forefront of European educational achievement. He consolidated the administrative system based on departments and prefects. He initiated the Council of State, which still vets the laws of France, and the Court of Audit, which oversees its public accounts. He organized the Banque de France and the Légion d’Honneur, which thrive today. He also built or renovated much of the Parisian architecture that we still enjoy, both the useful—the quays along the Seine and four bridges over it, the sewers and reservoirs—and the beautiful, such as the Arc de Triomphe, the Rue de Rivoli and the Vendôme column.

When you talk of being a minimalist people think that you are talking of a life of denial. Not so. Not at all. Think of people like Swami Vivekanand or Mahatma Gandhi – both of them spoke of concentration. Concentration is easier when you have less to think about.

Take the same 2 examples – no great worry about clothes, eating out, worldly possessions were down to a minimum. This meant they could concentrate on bigger things in life. Mahatma Gandhi also spoke about “choosing your problems” – YOU choose which was the MORE important problem to tackle. On a day when you had a headache if you broke your leg, you AUTOMATICALLY forgot your headache..and started worrying about the leg.

So when you try being a minimalist you try to reduce the clutter. Having lesser things to worry, lesser relationships to work on, lesser things to do, lesser possessions to care about, – YOU REALLY CONCENTRATE on what you have. This suddenly means you have time for coffee with a friend, a story for the kid sitting on your lap, a visit to a friend’s widowed mother, ….and yes suddenly you go and get a life, do you not?

Actually paring down releases a lot of energy, and most of us lack energy, NOT TIME. As we age we do sleep less, so time availability is not as much an issue as energy is. So if you concentrate all your needs into lesser things, your energy level is higher.  When you slow down your life (deliberately) and this is intended to give more importance to relationships, you start finding time for the more IMPORTANT things instead of the more URGENT THINGS.

When Vivekananda said “Concentrate” he obviously meant BE IN THE PRESENT – do not spend time brooding about what happened in the past or worrying about the future.

JUST BE IN THE PRESENT. That is your gift.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Sanjeev Sanyal wrote a good article on the need to rewrite Indian history books which have skipped details and have been biased. However, the question remains who shall wrote these books? And do we have enough talent to not just write today’s works but continue the work in future as well? Surya Marathe in Swarajya says govt […]

We’ve written some time ago as to how there is a government arm called ‘Office of the custodian of enemy property’ coming under Home ministry and governed by Enemy property act of 1968.

This office has confiscated share certificates from Pakistan nationals after the war of 1965 and 1971.

The value of these shares was Rs.29.4 crores in 1971. In 2015, the value of the same is Rs.10,000 crores receiving tens of crores every year as dividend.

We’ve also mentioned that these are confiscated shares and not a well thought and structured portfolio. These are being kept as it is for last 44 years. So definitely this would also contain perished companies, fraudulent companies who stole investor money, sub-par performers etc. The idea I’m trying to convey is that this confiscated stock portfolio is not like Sensex or a mutual fund, which are periodically changed and actively managed. Despite that equity has multiplied wealth so much.

Today I attended a session by Nilesh Shah of Kotak mutual fund. He mentioned about a news item appeared in Times of India 4 years ago. After coming home, I Googled and found the same.

It talks about a father gifting 120 shares of Wipro to his son in 1951, 64 years ago. The shares would have probably been worth thousands of rupees then. At the time of publishing of article in 2011, after stocks splits and bonus, the shares were worth, hold your breath, Rs.750 crores. Dividends itself would run into crores of rupees every year.

This is the power of equity, power of buying right and sitting tight.

I’ve reproduced the news item below.

http://timesofindia.indiatimes.com/city/mumbai/US-citizen-moves-court-seeking-release-of-his-shares/articleshow/9217946.cms

“A US citizen has moved the Bombay high court for direction to the Custodian of Enemy Property to release 120 shares along with bonus shares and accrued dividend of Western India Vegetable Products Ltd ( WIPRO), saying its no more enemy property. Additional solicitor general Darius Khambata told the court that the shares are worth Rs 750 crore today.

A division bench of Justice P B Majmudar and Justice Mridula Bhatkar on Wednesday was hearing a petition filed by Abubaker Cochinwala, a Texas resident, stating that at the time of vesting, they were in his name by a declaration of gift deed by his father in 1951 and being US citizen the shares could not be enemy property. His advocate Rajiv Narula argued that the property (shares ) is vested with the custodian only for management purposes in a “fiduciary capacity”.

Khambata said Cochinwalla has a stepmother and 10 other siblings, some based in Pakistan and others in the US, and there may be conflicting claims if the shares are surrendered to him. Observing that prima facie the high court cannot go into these issues, the judges adjourned the matter asking Cochinwala to state if he was willing to file a substantive civil suit in appropriate court to get his title adjudicated.”

We’re assisting you to both buy right and sit tight. Stay the course for 20 years and see the results.

On Monday, the Basel Committee on Banking Supervision published its Regulatory Consistency Assessment Programme (RCAP) Assessment of India’s implementation of Basel III risk-based capital regulations. While the RCAP Assessment Team assessed India as compliant with the minimum Basel capital standards, they had a problem with the Indian use of the word “may” where the rest of the world uses “must”:

The team identified an overarching issue regarding the use of the word “may” in India’s regulatory documents for implementing binding minimum requirements. The team considers linguistic clarity of overarching importance, and would recommend the Indian authorities to use the word “must” in line with international practice. More generally, authorities should seek to ensure that local regulatory documents can be unambiguously understood even in an international context, in particular where these apply to internationally active banks. The issue has been listed for further reflection by the Basel Committee. As implementation of Basel standards progresses, increased attention to linguistic clarity seems imperative for a consistent and harmonised transposition of Basel standards across the member jurisdiction.

Section 2.7 lists over a dozen instances of such usage of the word “may”. For example:

Basel III paragraph 149 states that banks “must” ensure that their CCCB requirements are calculated and publicly disclosed with at least the same frequency as their minimum capital requirements. The RBI guidelines state that CCCB requirements “may” be disclosed at table DF-11 of Annex 18 as indicated in the Basel III Master Circular.

Ultimately, the RCAP Assessment Team adopted a pragmatic approach of reporting this issue as an observation rather than a finding. They were no doubt swayed by the fact that:

Senior representatives of several Indian banks unequivocally confirmed to the team during the on-site discussions that there is no doubt that the intended meaning of “may” in Indian banking regulations is “shall” or “must” (except where qualified by the phrase “may, at the discretion of” or similar terms).

The Indian response to the RCAP Assessment argues that “may” is perfectly appropriate in the Indian context.

RBI strongly believes that communication, including regulatory communications, in order to be effective, must necessarily follow the linguistics and social characteristics of the language used in the region (Indian English in this case), which is rooted in the traditions and customs of the jurisdiction concerned. What therefore matters is how the regulatory communications have been understood and interpreted by the regulated entities. Specific to India, the use of word “may” in regulations is understood contextually and construed as binding where there is no qualifying text to convey optionality. We are happy that the Assessment Team has appreciated this point.

I tend to look at this whole linguistic analysis in terms of the suits versus geeks divide. It is true that in Indian banking, most of the suits would agree that when RBI says “may” it means “must”. But increasingly in modern finance, the suits do not matter as much as the geeks. In fact, humans matter less than the computers and the algorithms that they execute. I like to joke that in modern finance the humans get to decide the interesting things like when to have a tea break, while the computers decide the important things like when to buy and sell.

For any geek worth her salt, the bible on the subject of “may” and “must” is RFC 2119 which states that “must” means that the item is an absolute requirement; “should” means that there may exist valid reasons in particular circumstances to ignore a particular item; “may” means that an item is truly optional. I will let Arnold Kling have the last word: “Suits with low geek quotients are dangerous”.

This is a sheer experience call – not an intelligence call, just an observation call. Read it, agree with it, disagree with it, like it, lump it…but please comment here, on the blog, so that it remains here even after a few years.

1. Be Modest about your calls: Occasionally when you get a right call about the market, remember, it was luck, not skill.

2. If the client has got good returns it was because the market was good, you were incidental.

3. When you are selling a ULIP give example of a mutual fund – the returns look more impressive. Client is happy with nice numbers.

4. Say ‘I do not know’ when you do not know something. If said properly you will know the gap in your education and training.

5. It is far easier to get into a bad transaction than to get out of one. Exactly like marriage.

6. If you are not being criticized it means you are not doing enough or you are not meeting people better than you.

7. Look for what should be there. Improving what is there is easy, seeing what is missing requires experience.

8. Experience, patience, empathy, – cannot be taught, it has to be caught.

9. You cannot pick your relatives, but pick your boss well. A bad boss is terrible for health and wealth too !!

10. Constantly review what you are doing or have done.

11. Pick up the phone and tell your client about a mistake you made in his portfolio. If he finds out from my blog you have lost him

12. Have the same enthusiasm for paper work, finishing work, follow up, etc. as you have for closing a deal.

13. If it is a very small job decide NOT TO DO IT – do not take it and make a mess of the same.

14. If others are part of a project take it upon yourself to change, DO NOT ASSUME IT WILL GET DONE.

15. Strive for brevity in written and spoken communication

16. Be careful about your commitments. You are representing a client on one side and a fund house / insurance companies on the other hand. Do not criticize them. If you do criticize, client starts wondering why YOU CHOOSE THEM…!

17. A person who is nice to you and rude to his driver, waiter, children, spouse,….is not a nice person at all. He is acting for you.

18. When you have fund options for a client, discuss with the client. If the client is not knowledgeable try reaching out to a fund management team. Not the sales team.

19. A good fund with a lesser trail pays you much much better than a bad fund with a greater trail. Remember trail is a function of how long the client stays in the fund and how well the fund does.

20. Client portfolio review helps the client know that he is going in the right direction. You know it, but he needs to know it.

21. Beg for the bad news and the criticizing client. The demanding client of today is telling you how all clients will be in 5 years.

22. Teach your client the fund selection process. Next time you save lots of time in explaining your choices.

23. I am yet to see a client leave just because you educated him / her.

24. Never direct a complaint to the top. I get more resolutions by talking sweetly to the kid at the counter than by saying ” I know the CEO of the company”.

25. Hey guys that is all………

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

It is easy for the older people (I mean over 35) to say “Oh these kids lack committment”.

To start with I do not agree with that nonsensical comment. Every generation saw its own version of smart people and dumb people. Of committed people and people who were not committed. Or a Sachin Tendulkar and a Vinod Kambli!!

However, one thing is I feel for the younger generation…ok a list of things:

1. Even for a person with a good degree from a good college it is becoming difficult to find a good well paying nice decent job with some stability: Blame it on the economy, on China, on USA or general competition – it is far more difficult to get a good job today than it was say even in 2001 when the insurance sector recruited all and sundry. Many of them are today Vice Presidents…and love telling a tale “When we were selling ULIP….” Hello guys you were not selling ulips, you were MISSELLING ulips – people are now realising that they have got returns from -3% to 7% despite a boom in the equity markets. YOU QUEERED THE PITCH FOR THESE KIDS.

2. Tuition costs, stay costs, etc. for that stupid MBA colleges have gone through the roof: All MBA colleges have made the degree very expensive and the ROI is not being justified except in the very high branded schools. One top school could not place all its students last year, and no I do not wish to name them in a public forum. So if you spend Rs. 25 lakhs in one year to do your MBA, and you are not sure about the ROI, hey kids you have got it tough!!

3. Jobs are disappearing as fast as they are getting created: One life insurance company sacked a very big portion of their work force. The reason was not far to seek – the HR, admin and sales force joined their corrupt hands to recruit (they were planning to recruit a Million agents – their CXO told me…and then the cookie crumbled. DO NOT BLAME THE KIDS…the s.o.b.s who did the whole act were born in the 1960s, 1970s….not in the 1980s

….really manymore to come…

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

The post Latticework of Mental Models: Law of Small Numbers appeared first on Safal Niveshak.

My long vacation provided the ideal opportunity to reflect on the large number of comments that I received on my last blog post about the tenth anniversary of my blog. These comments convinced me that I should not only keep my blog going but also try to engage more effectively with my readers. Over the next few weeks and months, I intend to implement many of the excellent suggestions that you have given me.

First of all, I have set up a Facebook page for this blog. This post and all future blog posts will appear on that page so that readers can follow the blog from there as well. My blog posts have been on twitter for over six years now and this will continue.

Second, I have started a new blog on computing with its own Facebook page which will over a period of time be backed up by a GitHub presence. I did not want to dilute the focus of this blog on financial markets and therefore decided that a separate blog was the best route to take. At the end of every month, I intend to post on each blog a list of posts on the sister blog, but otherwise this blog will not be contaminated by my meanderings in fields removed from financial markets.

Third, I will be experimenting with different kinds of posts that I have not done so far. This will be a slow process of learning and you might not observe any difference for many months.

Ask someone for advice about how to break a bad habit and watch their eyes LIGHT UP.

Immediately, they’ll say “Oh! You should try this new app!” or “You should definitely read this book” or overwhelm you with a long list of tips that “worked for me!”

The thing is, we already KNOW what we should do. But there’s more to changing a habit than learning more information.

Maybe you want to stop procrastinating, eating junk food, or spending money. Is it just information you need?

For the most part, we already know all the conventional advice:

• To stop procrastinating, put to-dos on a calendar
• To stop eating junk food, substitute with healthier options
• To stop spending money, create a budget and stick to it

All these “tips” sound logical. They sound like they should work. And yet the tips alone doesn’t lead to radical change.

What we actually need is a system that guarantees we follow through on our goals.

• Step 1: Get over past failures — for good
• Step 2: Recognize how habits actually work
• Step 3: Choose your reward to create lasting change
• Step 4: Replace bad habits (why “quitting” doesn’t work)
• Step 5: Get back on track when progress stops

Step 1: Get over past failures — for good

When we can’t seem to follow through on our goals and break old habits, a lot us needlessly beat ourselves up. We think “well, if I just try harder” or “if I stop being so lazy” then I could make a change.

And when we don’t follow through, we feel guilty. Why do we do this? Guilt is the least productive emotion. It doesn’t help us move forward. It just makes us feel bad.

Let’s drop the guilt. It’s not our fault. We’re not weak or incapable of change. If we’re not losing weight, not spending quality (distraction-free) time with our families, or not doing anything else we want life, it’s usually because we don’t understand how to design our habits correctly.

So before moving on to the next section, decide that for at least the next week, you’ll try to catch yourself whenever you use “guilty” language. Then, instead of beating yourself up, slightly alter your negative language into something more positive and productive.

Like this:

• Instead of “I’m so lazy” try “I’m human. Everyone struggles with this.”
• Instead of “I’m going to fail” try “I’ll be fine. Even if the worst case scenario happens and I do fail, I’ll still be ok.”
• Instead of “I should do X” try “I’d like to do X.”
• Instead of “I am not the kind of person who….” try “What if I tried to…”

Once you internalize this, you make changes easier on yourself and a lot more FUN.

Step 2: Recognize how habits actually work

Every habit has three components:

• A cue, which is a trigger for a behavior to start (like your alarm clock going off)
• A routine, which is the behavior itself (like getting out of bed)
• A reward, which is the benefit of taking that course of action (like a nice, warm cup of coffee waiting for you when you get out of bed)

The reward is how our brains actually learn to want a particular behavior in the future. We put 2-and-2 together and equate the pleasure of a cup of coffee with getting out of bed.

That’s how people pick up bad habits, like smoking, but it’s also how people stick to good habits like exercising. They link a cue and routine to a reward.

For decades people focused exclusively on changing the behavior, the routine itself.

But we now know that cues and rewards are actually the most important parts of making a habit stick. If you get the cues and rewards right, the routines form by default.

That’s why, for example, eating more chocolate could help you exercise more.

Step 3: Choose your rewards to create lasting change

Yes, you read that right: Research has shown that eating more chocolate can help you exercise more.

Here’s why: Eating chocolate at the end of a workout is a simple way to ignite the reward centers in your brain and cement the good feelings that are required for a habit to take root.

It sounds contradictory (that eating chocolate can help you exercise more), but it’s true.

I recently sat down with Charles Duhigg, author of the book The Power of Habit (arguably the best book on behavioral change in modern times), to talk about how to create new habits.

And in this part of our chat, he explains just how important rewards can be (even something random like eating chocolate to workout more) and how you can choose your own rewards to make new habits stick.

 

Your turn: What’s habit do you want to start? What will you do to reward yourself for taking action on this? It’s important that you plan this in advance. For example, you don’t want to end your workout, leave in a rush and not be able to reward yourself with a smoothie or a relaxing shower. You want to ensure that you can give yourself a reward to make sure the behavior sticks.

Here are some sample rewards you might use:

• Giving yourself 5 minute breaks for every 20 minutes of deep work you do.
• Allowing yourself to buy a nice pair of shoes after you hit your savings goal for a month
• Watching a TV show (guilt-free) after cooking a healthy meal

The reward can be anything you choose, as long as you’re giving yourself something you genuinely enjoy.

Step 4: Replace bad habits (why “quitting” doesn’t work)

It’s very hard to simply stop a bad habit. That’s because we’re still getting whatever cue was telling us to do the bad habit in the first place, and we’re wired to know the bad habit will give us an immediate reward.

We’re much more likely to be successful if we change a bad habit into a better behavior.

Here’s an common example: A lot of us tend to look for something sweet to eat right after lunch. We hit the vending machine for chocolates, cookies, or some other sweet to fix our craving.

Because, yes, sweets and desserts taste good, but a habit is much more complicated than that.

• Maybe getting that sweet give us a burst of energy from the sugar so we can push through the rest of the day.
• Or maybe we’re not ready to go back to work so getting up for a snack gives us a chance to walk around the office and chat.

It’s not just the sweet that’s creating our behavior. There’s a whole series of reasons that surround it.

Instead of just giving up the sweets, maybe we could try getting up from our desk and eating an apple instead. Or maybe, if it’s the energy from the sugar that we’re craving, a cup of coffee will do the trick.

The important thing to note is that we’re not stopping cold turkey. Instead, we’re replacing a “bad habit” with a new, better one.

Decide what your replacement habit will be and commit by writing it down. Any time your old behavioral pattern pops up, do this habit instead.

Here are some ideas to get you started:

• If you’re drinking too much coffee, drink a decaffeinated tea instead.
• If you tend to overeat when you’re feeling stressed, chew gum after you’ve eaten your regular portion of food.
• If you always hit the snooze button on your alarm clock in the morning, move your alarm to the other side of the room so you have to get out of bed to hit snooze.

Step 5: Get back on track when progress stops

Even the best laid plans sometimes fail. That’s life. When we’re trying to form a new habit, interruptions to our new routine can break the cue-routine-reward cycle.

But these setbacks don’t have to knock us permanently off course. Often, we can get back on track with some very simple fixes.

Here’s how to KEEP a habit going once you’ve created it (in less than 3-minutes).

 

What about you? Once you start your new habit, how will you keep doing it? It’s important to plan ahead for this so if your momentum temporarily stops, you don’t get permanently off track.

Some things you could do:

• Set up a quarterly review to see how you’re doing (with google alerts in your calendar system)
• Get an accountability and support partner (could be a friend or spouse)
• Make a public commitment (by posting to Facebook or simply telling all your friends)
• Create a “why” for why you actually want to make this change

How 15 Top Performers Created Good Habits

Where can you start?

I asked some of the world’s top experts — people like Neil Patel, Noah Kagan, BJ Fogg and Josh Kaufman — to share some of the life-changing habits and tests they’ve created in their own lives.

You can implement most of these in just a few minutes.

I put them together in this free guide for you.

15 Little Life Hacks that will Change Your Life

It covers everything from habits on how to be more productive, to getting into better shape, to generating explosive growth in your business and career.

Grab your free copy so you can start building massively successful habits into your own life.

Click here to get access.

How to break bad habits is a post from: I Will Teach You To Be Rich.